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China’s chip maker could see production disruptions from blacklisting

China’s top flash memory chip maker Yangtze Memory Technologies Co (YMTC) could see its production hindered and technological progress capped if added to a US trade blacklist, according to analysts.

Despite the Wuhan-based company’s assurances that it will comply with US export rules, the US government is set to put the company on its Entity List, which would require suppliers to seek explicit approval before selling to YMTC. The US Department of Commerce has not announced its decision, but it is set to be added along with more than 30 other Chinese companies “as early as this week”, Bloomberg News reported.

This would be a heavy blow to YMTC, which is estimated to control 5 to 6 per cent of the global NAND flash memory market, according to a research note by asset management firm Bernstein. As the biggest player in China’s flash memory market, it was the most high-profile company in the latest batch of 31 Chinese entities that the US Bureau of Industry and Security (BIS) added to its Unverified List (UVL) on October 7.

The Entity List would introduce an even greater disruption of trade for YMTC, analysts said, because its scope “includes everything”. Current rules require tools capable of producing 128-layer NAND flash chips to be approved for export.

“Adding YMTC to the Entity List will not bring down its current production completely,” said G. Dan Hutcheson, vice-chair at TechInsights, a semiconductor research company. “But it will hinder production and product development due to restricted access to US suppliers.”

Dylan Patel, chief analyst at Los Angeles-based SemiAnalysis, said YMTC will still be able to produce for a while due to many spare tools,” but its technology will be capped at 128-layer.”

A US move to punish YMTC and other entities on the UVL could also suggest that Washington’s desire to restrict China’s chip industry is strong enough to overrule technical cooperation among individual businesses.

Many Chinese companies on the UVL, including a subsidiary of chip tool maker Naura Technology Group, have been conducting end-use checks in cooperation with US government officials via China’s Ministry of Commerce. A BIS official in Beijing has plans to visit Wuhan, the Post previously reported, where three of the listed entities are based.

When asked this month at an event in Washington about the companies added to the UVL, Alan F. Estevez, Under Secretary of Commerce for Industry and Security, said the US was “seeing better behaviour”, suggesting Chinese companies were cooperating with the US. Some took the comments as an optimistic sign that the companies would not be added to the Entity List.

The latest reports are now dampening those hopes.

China this week has taken formal action to challenge new US restrictions on semiconductors and other hi-tech exports by filing a suit at the World Trade Organization.

Wang Wenbin, China’s foreign ministry spokesman, said on Wednesday the US plan to blacklist additional Chinese entities is a naked act of “technology bullying”.

Founded in 2016, YMTC was a latecomer to the NAND flash industry, but it raced ahead to become a leading company in the market. A recent TechInsights report credited YMTC with producing “232-layer NAND Flash, ahead of its rivals”, making the Chinese firm a “serious contender” with global giants such as Micron, Samsung and SK Hynix.

The Biden administration rolled out a sweeping set of export control updates, barring China-bound exports of off-the-shelf high-end chips and chip-making tools to make them domestically, citing concerns that they will strengthen the Chinese military, dealing another heavy blow to China’s ambition to become self-reliant in semiconductors.

The US aims to maintain a technological lead over China that is as large as possible by capping China’s logic chip-making advancements at the 14-nanometre node process and DRAM and NAND flash at 18nm and 128 layers, respectively.

More layers increase the density of NAND flash dies, enabling greater capacity in solid-state drives. South China Morning Post

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